something sparkly this way comes…

From Bloomberg.com, July 23, 2008:

“Whitehall Jewelers Inc. tomorrow will face a long line of jewelry suppliers who will argue that the 373-store retailer, which filed for Chapter 11 protection on June 23, has no right to liquidate goods they supplied on consignment. Whitehall already has approval to hold a July 31 auction to decide which liquidator will make the best offer for selling the assets at going-out-of- business [GOB] sales.

“The hearing tomorrow is part of a separate process to authorize the GOB sales themselves and decide what Whitehall can and can’t sell.

“Whitehall argues that it has the right to sell consignment merchandise because there is a dispute over whether the goods were provided under arrangements valid under state law.

“Some of the jewelry suppliers counter Whitehall’s argument and contend no public filings about the consignments were required under state law. Others contend that their filings make valid consignments even if they didn’t amend the filing when the company changed the spelling of ‘Jewelers.’ [from "Jewellers"]

“The hearing also covers Whitehall’s motion for final approval of $80 million in financing from lenders for whom Bank of America NA serves as agent. Whitehall already has interim authority to borrow $22 million.

“The Chapter 11 petition by Chicago-based Whitehall listed assets of $207.1 million against debt of $185.4 million. Whitehall’s stores in 39 states include 78 purchased in April in the Chapter 11 liquidation of Friedman’s Inc.

“The case is Whitehall Jewelers Holdings Inc., 08-11261, U.S. Bankruptcy Court, District of Delaware (Wilmington).”

And from Jamie Mason at TheDeal.com, July 14, 2008:

“Whitehall’s Final Sale Approved

“A Delaware judge has approved the bidding procedures for bankrupt jewelry retailer Whitehall Jewelers Holdings Inc.’s going-out-of-business sales at all of its stores but not the stalking-horse bidder’s breakup fee. Since the breakup fee was denied, the group has reserved the right not to participate in the auction, so it’s unclear if there will be a stalking-horse bidder for the sale. The stalking-horse bidders had agreed to pay Whitehall, which sells diamonds, gold, precious and semiprecious jewelry and watches, 55.5% of the value of the inventory if it’s between $169 million and $177 million. However, if the inventory is worth between $138 million and $145 million, Whitehall will receive 53.5% of the value. This means that Whitehall could receive between $73.8 million and $98.2 million, depending on what its inventory is worth. “

The definition of a stalking horse bidder, from Wikipedia: “In bankruptcy, a stalking horse bid is a first, favorable bid solicited by the bankrupt company strategically to prevent low ball offers.”

What seems like the clincher, from Gerson Lehrman Group, “The Expert Network,” July 8, 2008:

“If the company [Gitanjali] was able to acquire Whitehall Jewelers’ 375 [sic] stores, it would likely be the principal diamond supplier to about 518 mall based jewelry stores with a [sic] annual turnover of about $475 million.

“However, it remains to be seen whether the company can strike a deal with the creditors to buy Whitehall. Longer term, it’s even more problematic if the Gitanjali’s product breadth is sufficiently broad enough to support 518 jewelry stores in the US marketplace. According to unnamed Reuters’ sources, Gitanjali’s deal with Whitehall is between 3.5 billion and 4.0 billion rupees. That’s $80.85 million to $92.45 million at current exchange rates. The question is whether all classes of creditors would be better off liquidating the company.

“According to court papers the company had $207 million in assets and about $185.4 million in debt. The Gitanjali deal would probably mean unsecured creditors would get pennies on the dollar while secured creditors recouped most of their investment. With Gitanjali the likely beneficiary of Whitehall’s future purchases, trade creditors have little incentive to agree to the deal and would get more if the company was simply liquidated. Another possibility would be to liquidate the existing inventory and sell the Whitehall name and fixed assets to Gitanjali. How much irreparable damage a 90 to 120 day ‘Up to 70% Off’ liquidation sale would do the Whitehall and Lundstrom trade names is an open question.”

I think I’ll pass.